The Santa Claus Rally Was A No-Show. What Market Experts Expect for 2026.

• The S&P 500 has averaged 1.3% returns during the Santa Rally period since 1950, but posted losses in 2000 and 2008 before the dot-com crash and financial crisis respectively
• Market experts are divided on 2026 outlook: Fundstrat's Mark Newton sees potential for the S&P to move above 7,000, while others await January results as a key indicator
• The S&P 500 started 2026 up 0.8% over the first two trading days despite the absent Santa Rally, with some strategists noting institutional 2026 targets imply modest gains ahead

Market Summary: Santa Claus Rally Fails to Materialize for Third Consecutive Year

Key Performance Data

The traditional Santa Claus Rally—covering the final five trading days of December and first two of January—failed to deliver for a third straight year. The S&P 500 declined 0.11% during this period ending January 2026, falling short of the historical average gain of 1.3% since 1950. However, through the first two full trading days of 2026, the index has rebounded 0.8%.

Historical Context and Market Implications

Previous Santa Rally absences have preceded major market downturns: a 4% decline in 2000 preceded the dot-com bubble burst, while a 2.5% loss in 2008 preceded one of history's worst bear markets. Despite this concerning pattern, market experts remain divided on 2026's outlook.

Expert Perspectives

Jeff Hirsch (Stock Trader's Almanac) is withholding final judgment until end-January, warning that negative performance in both the first five trading days and full month would "weigh heavily" on 2026 prospects.

Mark Newton (Fundstrat) remains optimistic, viewing the recent S&P 500 breakout as "a big positive" potentially pushing the index back above 7,000.

Jessica Rabe (DataTrek) cautions against over-interpreting January's performance, noting that positive January returns historically correlate with stronger annual performance, though the pattern doesn't hold every year.

Broader Context

Major financial institutions' 2026 S&P 500 targets suggest modest growth expectations, contrasting with recent years' outsize returns. Some investors question whether the benchmark can maintain its exceptional performance streak, though many strategists see insufficient evidence to turn bearish on U.S. equities.